September 26, 2007

Ears Ringing

Vonage,
the best of the VoIP providers, had its bell rung twice for patent infringement
in the past couple of days. Yesterday, a jury found Vonage infringed Sprint
patents; a $70 million tab in the offing. Vonage will, of course, appeal. But,
with history as a guide, that offers little succor, as Vonage lost its appeal
for two of three Verizon patents it infringed, and the third still looms. Being
the best by snitching others' IP is running the company into the ground.

Vonage's appeal against the Verizon verdict got a three-way split decision
from a CAFC panel of three, but not much substantial to Vonage's favor. The
panel struggled with claim construction, with two of the judges writing
dissenting opinions on certain claim terms. The CAFC appears randomly competent
at best as it grapples to comprehend technical terms and even struggles with
rudimentary English; a disgraceful display by a high court.

The three Verizon patents on appeal were
6,282,574;
6,104,711; and
6,359,880. '574 and '711, sharing the same spec, claimed enhanced name IP
(internet protocol) translation. '880 went to a localized wireless gateway for
wireless phones.

Vonage was appealing losing on infringement and invalidity via obviousness,
as well as fighting hard against an injunction.

In enough agreement were Judges Michel, Gajarsa, and DYK, with DYK writing
the majority opinion: '574 and '711 stuck. A claim term for '880 was found
misconstrued by Gajarsa and DYK, but Michel thought the district court on-point
for its entire ruling.

The disputed '880 claim term was "limited." Did that mean limited to a few
feet, or within a wireless service area (around 30 feet in its earlier technical
incarnations)? Technically, the right answer was "service area," but the patent
applicants had weaseled a very narrow definition during prosecution to evade
prior art. So, prosecution estoppel limited "limited" to be, well, limited.

'880 originated from a divisional of application 08/814,291 ('291
application).

We have held that a statement made by the patentee during prosecution
history of a patent in the same family as the patent-in-suit can operate as
a disclaimer. Microsoft Corp. v. Multi-tech Sys., Inc., 357 F.3d 1340, 1350
(Fed. Cir. 2004) (statement made during prosecution of related patent
operated as a disclaimer with respect to a later-issued patent). To operate
as a disclaimer, the statement in the prosecution history must be clear and
unambiguous, and constitute a clear disavowal of scope. Id., at 1356-57.

During prosecution of the ’291 application the applicants’ claims were
rejected based on prior art wireless gateway systems. The applicants gained
allowance of the claims of the ’291 application after stating that the prior
art systems “all appear to be directed to non-localized systems,” and that
the “present invention,” by contrast, was “restricted to operate within a
few feet from a base station (i.e. wireless handsets).” J.A. at 7191.

Gajarsa rightly thought the '711 claim term "destination address" had been
misconstrued by not having been construed at all. The majority, falling into an
incomprehensible abyss of technical ignorance, resorted to Webster's dictionary
to find that "destination address" didn't necessarily mean the final
destination. Ignoring their own precedent in
Phillips v. AWH, the majority couldn't even be bothered to use a technical
dictionary. Gajarsa in dissent -

Vonage proposed a definition for the ’711 patent claim term “destination
address” before the district court, arguing that the destination address
must identify “a called device or service endpoint.” However, the district
court’s Markman order and its resulting jury instructions lacked any
reference to this term. The only instruction to the jury regarding this
claim term arose from a catchall directive: terms the court had left
undefined “are to be given by you [the jury] their customary and ordinary
meaning to a person of ordinary skill in the art.” Failing to construe this
term was error, both because the district court was obligated to provide
some guidance to the jury on this term and because Vonage’s definition is
the correct one. Vonage should be entitled to a remand for further
proceedings on infringement of the ’711 patent.

The evidence here indicates that Vonage’s position on the endpoint versus
intermediary issue - the relevant issue actually disputed by the parties -
is correct. Reading the term “destination address” in the context of its
usage by the specification, see Phillips v. AWH Corp., 415 F.3d 1303, 1316
(Fed. Cir. 2005) (en banc), I conclude that the patentees meant to designate
only the endpoint of the VoIP call. Verizon’s theory of infringement, to the
extent that it identifies the address of an RTP relay as a “destination
address,” is without merit under that meaning.

The CAFC anticipated further claim construction kerfuffles, and preemptively
construed.

Vonage wanted the “localized wireless gateway system” to require that it
“compress[]/decompress[] and packetiz[e] voice signals.” The appeals court
concurred, because the disclosure drove the point home; providing a reminder
that specifications are best written in menu fashion of embodiments, with, of
course, a best mode to hang one's hat on.

In the course of describing the “present invention,” the specification
then states that “[t]he gateway compresses and decompresses voice frequency
communication signals and sends and receives the compressed signals in
packet form via the network.” Id. ll.12-15. When a patent thus describes
the features of the “present invention” as a whole, this description limits
the scope of the invention. Honeywell Int’l, Inc. v. ITT Indus., 452
F.3d 1312, 1318-19 (Fed. Cir. 2006); Scimed Life Sys., Inc. v. Advanced
Cardiovascular Sys., Inc., 242 F.3d 1337, 1343 (Fed. Cir. 2001).

Vonage also wanted the gateway system to be construed to require multiple
transceivers. But, in outrageous defiance of basic English, the court allowed a
claimed "plurality" to be singular.

Vonage also argues that the district court erred in failing to require
that the “localized wireless gateway system” have multiple base station
transceivers, because the specification states that “[t]he inventive system
includes a plurality of base station transceivers.” ’880 patent col.4
ll.7-8. However, we have held that a limitation requiring a “plurality”
may be satisfied by a single object. Interactive Gift Express, Inc. v.
Compuserve Inc., 256 F.3d 1323, 1335 (Fed. Cir. 2001) (“[T]he reference to a
plurality . . . can consist of one material object.”). Therefore, Vonage has
failed to show error in the district court’s interpretation.

Because the damages had been dished as a mondo gumbo, not segregated by
patent, the whole award had to be pitched.

In light of our holding that a new trial is required on the issue of
infringement of the ’880 patent, we also vacate the determination that
Verizon is entitled to a damages award of $58,000,000 and a royalty rate of
5.5%, since the jury’s verdict gives no indication what portion of such
damages were allocated to the infringement of the ’880 patent. In a
situation - such as this one - where the jury rendered a single verdict on
damages, without breaking down the damages attributable to each patent, the
normal rule would require a new trial as to damages. See Memphis Cmty.
Sch. Dist. v. Stachura, 477 U.S. 299, 312 (1986) (“When damages instructions
are faulty and the verdict does not reveal the means by which the jury
calculated damages, the error in the charge is difficult, if not impossible,
to correct without retrial, in light of the jury's general verdict.”)
(internal quotation marks omitted).

The injunction stuck.

The district court in this case made findings of fact under the four
prongs of the test for issuance of an injunction, which require a plaintiff
seeking an injunction to demonstrate: “(1) that it has suffered an
irreparable injury; (2) that remedies available at law, such as monetary
damages, are inadequate to compensate for that injury; (3) that, considering
the balance of hardships between the plaintiff and defendant, a remedy in
equity is warranted; and (4) that the public interest would not be disserved
by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C., 126 S. Ct.
1837, 1839 (2006). Vonage argues that the district court impermissibly based
its finding of irreparable harm on lost sales alone, see Abbott Labs. v.
Andrx Pharm., Inc., 452 F.3d 1331, 1348 (Fed. Cir. 2006), but the district
court found there were “several areas of [irreparable] harm,” J.A. at 6700,
and the record contains evidence of price erosion as well as lost
opportunities to sell other services to the lost customers.

Olga Karif at BusinessWeek has inked some back-of-the-envelope figures,
that, at current financial ramming speed, Vonage will hit the wall right around
the 2008 election.

Vonage has built a decent brand name, albeit perhaps sullied a bit by its
patent spats, and early operational snafus that have been overcome. In but a bit
of time, after further legal hammering, the company may be grabbed by one of its
competitors. Right now, wounded by patents, the company is likely to bleed its
price down for cheaper acquisition in the coming months.

Comments

I was wondering about a comment you made earlier, I brought it forward in case you did not look at older comments.

"Depending upon the art area, many to the vast majority of issued patents are unenforceable, as they would be found obvious. Because the numbers are so large, and yet each patent is individual, it is difficult to have any sense of percentage. Patent Hawk, whose bread-and-butter is invalidating patents via prior art, kills over 60% of those assigned using 102. Most Patent Hawk work is in the fields of business methods, software, electronics, and semiconductor. Add in the ease of 103(a) invalidity post-KSR, and over 90% of patents in those areas are likely to be fodder for invalidity via obviousness. The pre-KSR strategy of incremental invention created a historical library that now acts as a falling-domino set for obviousness hindsight reasoning that the courts for decades shunned, but now embrace, thanks to the unlawful SCOTUS KSR decision."

No one else seems to be addressing this amazing situation, I was wondering if you could clarify this, perhaps in a new post on the subject. I was wondering also if this is a de facto elimination of business and software patents if the numbers that are invalid are so high. If 90% of the patents in those areas are now invalid, then how is a patent lawyer to advise clients with new patent applications? If 90% are now not worth filing, then how can an attorney be sure which ones are valid. If he is too optimistic then he might be accused of wasting his client's money. On the other hand he might be better off filing anyway with continuations in case the ruling is reversed. Is it likely to be reversed though, I can't imagine the Supreme Court changing their mind on this.

Since someone was trying to sue the patent office over the new rules, I wonder of someone could sue because of a decision that eliminated 90% of patents in some areas. I would think that if the US suddenly decided to disallow software patents this would create a storm of protests, but this in effect seems to be what has happened.

If 90% of some patents can be made invalid by redefining PHOSITA it seems the definition of one of average skill needs to be clarified. I wonder if this definition of PHOSITA is so indefinite that it makes all patents invalid. After all many patents are ruled invalid because an infringer cannot tell what the invention is and what it is not, hence giving indefinite claims. So how can one tell what the invention is if the scope of the invention is hopelessly indefinite from what PHOSITA is?

Could one in fact challenge a patent's validity on the grounds that PHOSITA is now too indefinite to define a patent? Where to then?